Employment Rights Bill

Lord Sharpe of Epsom Excerpts

2nd reading
Thursday 27th March 2025 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, I join in thanking the Minister for her introduction, and, of course, in praising and commending the speeches of the four maiden speakers today: the noble Baronesses, Lady Berger and Lady Gray of Tottenham, and my noble friends Lady Cash and Lord Young of Acton. This has been a very interesting debate. Before I start, I should declare my interest as a minority shareholder in two businesses that employ people. It is a pleasure to follow the noble Lord, Lord Fox. I found myself nodding in agreement with much of what he said, and I will do my best not to repeat all of it.

Others have commented on the fact that this, overall, is a troubling Bill, and for numerous reasons—not least, as my noble friend Lord Hunt of Wirral articulated so expertly, its excessive reliance on secondary powers. I will not expand on that now, as the case has been made—and, indeed, reinforced just now by the noble Lord, Lord Fox—but I will focus my remarks on two areas where, to use a phrase coined by my noble friend Lady Penn, the balance is seriously wrong. They are the inevitable and disproportionate impact on SMEs, acknowledged in the Government’s own impact assessment, and the day-one rights and their inevitable impact on hiring.

I begin by turning to the bigger picture and quoting from the Government’s own impact assessment. It states:

“Many of the policies within the Bill could help support the Government’s Growth Mission … we conclude the direct impact on growth could be positive, but small”.


The word “could” appears 132 times in the assessment. That is the language not of confidence but of uncertainty and hesitation, and it shows a fundamental lack of conviction in the very legislation before us.

While the Government dither, businesses are suffering. Indeed, as we saw only yesterday, the OBR downgraded growth forecasts from 2% to 1%. A particularly telling phrase in the explanatory note—as already referenced by my noble friend Lord Moynihan—said

“we have not incorporated any impact of the Government’s Plan to Make Work Pay as there is not yet sufficient detail or clarity about the final policy parameters.”

It goes on to say:

“Employment regulation policies that affect the flexibility of businesses and labour markets or the quantity and quality of work will likely have material, and probably net negative, economic impacts on employment, prices, and productivity”.


That is an explicit acknowledgement of the uncertainty generated by this Bill, and an admission that implies that more downgrades are to come. Let us look at the facts. The business confidence index for the United Kingdom stood at 97.4 in December 2024, a sharp decline from the previous month and the lowest reading since July 2020. That, of course, was a time of extraordinary crisis, global shutdowns and economic freefall. Yet today, with no pandemic to blame, we find ourselves again teetering on the brink.

The Institute of Chartered Accountants in England and Wales’s Business Confidence Monitor, which is the most comprehensive measure of sentiment in our business community, plummeted from 14.4 to a mere 0.2 in Q4 2024. The Institute of Directors confirms this: its Economic Confidence Index dropped to minus 64 in February, close to the lows reached during Covid. Regarding this Bill specifically, the Institute of Directors’ survey suggests that 57% of business leaders will be less likely to hire.

ICAEW members across the UK have raised concerns about the Bill’s impact on costs, labour flexibility and business dynamism. According to a poll of its members, 73% expect the Bill to increase employment costs for new and existing employees. One said, “It is like rushing down a hill towards a lake and pressing the accelerator.” The OBR has told us how this ends: in unemployment, and it will be unemployment of the Government’s own making. On that subject, that is one statistic that noble Lords opposite failed to cite when making their international comparisons. For the record, it is currently 7.3% in France, 6.2% in Germany and only 4.4% here.

What is driving this collapse in confidence? It is the suffocating weight of excessive taxation and crippling uncertainty about the future, as many others have noted. Small and medium-sized enterprises, which concern those of us on these Benches considerably, are rightly hailed as the backbone of the British economy, and for very good reason. SMEs account for 60% of UK employment and 48% of business turnover. Their confidence has turned negative for the first time since Q4 2022, falling from 12.8 to minus 4.7. That figure is not just a dry statistic. It represents thousands of business owners lying awake at night, wondering whether they can afford to keep the lights on, let alone hire new staff or invest in their future.

We should be under no illusion: the cost of this uncertainty is devastating. The Federation of Small Businesses reported that a staggering 33% of small employers now expect to reduce staff. That number has doubled in just one quarter. Meanwhile, only 10% of small firms plan to take on new employees. The result will be a shrinking economy, a contracting workforce, reduced opportunities for young people and those seeking to move from welfare to employment, increased costs and bureaucracy, and a country that is clearly retreating from ambition rather than embracing it.

If more confirmation is needed of this picture, the Government’s own impact assessment for the recent SI, the National Minimum Wage (Amendment) Regulations 2025, confirms the difficulties facing small business. It states that

“there is some evidence of challenging business conditions for SMEs specifically. Around 42.7% and 36.8% of micro and small businesses, respectively reported having less than three months of cash reserves in September 2024 (compared to 19.2% for large businesses). Around 15.6% and 33.9% of micro and small businesses, respectively, reported the cost of labour as a challenge to business turnover in November 2024.”

It is not clear whether, by the “cost of labour”, it was talking about the workforce or the party opposite. SMEs will need many exemptions from the provisions of the Bill. Yet the picture I have just painted is about to be made worse, as the Bill chooses to add yet another burden: disastrous day one rights for unfair dismissals and statutory sick pay.

So I ask a simple question: who truly understands what a business needs to thrive and survive? Is it the entrepreneur who has built something from nothing, the employer who fights every day to keep their company afloat, or an employment tribunal that is removed from the realities of running a business yet is now empowered to make decisions that could determine its fate? As the data reported last year by His Majesty’s Courts & Tribunals Service makes clear, employment tribunals are currently not able to make any speedy judgments. The Law Society described the backlog as “spiralling” and a very well-known legal firm described the tribunals to us as

“a bit of a laughing stock”,

“creaking” and “hugely unreliable”. That firm might be expected to support the Bill out of self-interest, but it does not.

The Bill makes it harder for businesses to prove that redundancies are genuine. It creates a scenario where every decision could be second-guessed by tribunals that the legal profession thinks are a bit of a laughing stock. Every restructuring might have to be questioned and every difficult choice turned into an expensive legal battle. Why would a business fire for no reason? Businesses need motivated, skilled employees, and they need time to assess the likelihood of an employee acquiring those skills and demonstrating that motivation. The noble Lord, Lord Vaux, put this very well and comprehensively explained it. However, to quote one of his Cross-Bench colleagues—the noble Lord, Lord Moore of Etchingham—in a newspaper column the other day, this clause is,

“as if children, once admitted to a school, were immediately deemed to have passed all the ensuing exams”.

As my noble friend Lady Cash noted, this is not an us-and-them perspective. Even if there were no other reason, retention is cheaper than firing and rehiring. Yet the Bill assumes, without evidence, that businesses are acting in bad faith, that they need tribunals to intervene and that they do not already have a strong incentive to retain talent.

The cost of all this will be staggering. The impact assessment suggests £5 billion, which will inevitably prove to be optimistic and which will inevitably fall disproportionately, as the Government admit, on the very SMEs we need to power growth—SMEs that the facts say are already struggling as a result of this Government’s other misguided policies. Instead of managing their businesses and seeking new markets and customers, they will be bogged down in human resources. If they get it wrong, they will be bogged down in litigation, endless documentation and the endless hiring of legal experts to justify every strategic decision. This is not just bureaucratic overreach but an outright violation of business autonomy.

A business should be able to shape its own workforce in response to market demands, competition and innovation, yet under the Bill it seems that businesses can only make such decisions when faced with an existential crisis. What recourse would a company struggling with stagnation and trying to bring in fresh talent and stay ahead in a fiercely competitive world have? We must ask ourselves: do we want a thriving economy and businesses that grow, invest and create jobs, or do we want a system that strangles them in red tape, drags them into courtrooms and forces them into stagnation? The Bill, as it stands, will not boost our declining growth, restore business confidence or create jobs. Instead, it will leave many businesses trapped: unable to adapt, unable to compete and, ultimately, unable to survive.

So I ask the Minister: have the Government considered the likely impact of the measures in the Bill on their recently stated aim to move people off long-term welfare? Can they speculate as to the likely effect of day 1 unfair dismissal rights and statutory sick pay rights on that ambition? Can they answer why a prospective employer might take a risk on a potential employee who is recovering from a long-term medical condition? The obvious net effect of these measures will be to encourage employers to do more due diligence, be more risk averse and rely more on references and less on intuition. That will have a very damaging impact on social mobility and workforce diversity. How do society or the individuals and businesses affected benefit from that? How is that—to use the words of the noble Lord, Lord Livermore—either compassionate or fair?

Beyond the immediate damage to business confidence, we must consider the broader implications for the UK’s attractiveness as a destination for investment. Capital flow is where it is welcomed. Investment thrives where there is stability, flexibility and a regulatory framework that encourages and does not obstruct growth. The Bill sends precisely the wrong message to investors. It signals that the UK is becoming a more complex, risk-laden and bureaucratic place to do business. Why would international companies choose Britain when they can invest in economies with more business-friendly policies?

Ministers claim that employment protections will create a fairer economy, but they fail to acknowledge the reality: an economy that cannot attract investment is an economy that cannot create jobs at all, and surely that is the ultimate unfairness. Or, to put it another way, and to use the words of the noble Lord, Lord Watson, surely the greatest dignity of all is to have a job.

As we have heard, there is plenty more in the Bill that we will be addressing in Committee. My noble friend Lord Young of Acton made a brilliant maiden speech, drawing heavily on his experience with the Free Speech Union and talking to the invidious Clause 20. We will support him. As a reminder, my noble friend pointed out that employers are already liable for the sexual harassment of third parties under the worker protection Act. On flexible working, we struggle to understand the problem this is trying to fix. As my noble friend Lord Hunt said earlier, a majority of workers on these contracts seem to like them. The Recruitment and Employment Confederation states that 79% of respondents to their recent survey like flexible working because of the flexibility. The Chancellor says she wants to tear down regulation to boost growth, but this Bill introduces a new quango with perhaps alarming, to use the word of the noble Lord, Lord Fox, or even Kafkaesque powers.

We have spoken to all the major business organisations and many employers with real-world experience, and we can find none that supports the Bill. We found unanimity that it will cause considerable damage. Can the Minister give any examples, apart from those four that she has already mentioned and which have been trotted out fairly frequently over the past few months, of actual, real employers that support all the Bill? Please name just one, as we would love to talk to them to see what we have missed. We will of course also be turning to the subject of trades unions, to which a number of noble Lords have spoken. In particular, I commend the contributions of the noble Lord, Lord Burns, the noble Baroness, Lady Fox, and indeed the noble Lord, Lord Fox, from the Liberal Democrat Benches, for their thoughtful interventions on this.

We believe that the UK stands at a crossroads. We understand the intent behind the Bill, and of course there are some things in it that we can support. But we can either embrace policies that made us a global leader in investment and innovation, or we can burden ourselves and businesses with regulations that drive them elsewhere. I believe that the Government are serious about growth, but I have no choice but to conclude that the choice here is straightforward: they can have this Bill or they can have growth, but they cannot have both.